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- Santos (STO) announces its decision to sell a 2.6 per cent stake in the PNG LNG project to PNG’s government-owned gas company Kumul Petroleum
- Kumul also has the option to acquire a further 2.4 per cent stake down the line
- Both the stakes are valued at more than $500 million each bringing the total price greater than $1 billion for a five per cent stake
- PNG’s competition regulator must approve the deal first but Prime Minister James Marape has voiced support for the deal
- The company is still trying to shake off its court loss in Australia regarding its failure to consult local Aboriginal communities in north Australia
- Shares last traded at $7.67
Santos (STO) has decided to sell an initial 2.6 per cent stake in its Papua New Guinea liquefied natural gas (PNG LNG) project to Kumul Petroleum Holdings.
The interest is participating and has been offered to Kumul for $576 million in cash, with Kumul accepting responsibility for $160 million of the original finance debt that initiated the project.
Before the deal can be finalised, the PNG competition regulator must approve it on or before the last day of December.
Santos has reported that Kumul has already paid $80 million into escrow as part of the deal outlined in a formal sales agreement.
In addition, Kumul has committed to making further pre-payments into escrow until the PNG regulator approves the decision.
This outcome is expected to proceed, as it has the backing of PNG Prime Minister James Marape.
“This transaction will increase Kumul’s interest in PNG LNG and supports the PNG government objectives for the people of PNG to have a greater equity interest in the development of their natural resources”, he said.
Mr Marape has been generally supportive of industry, although there has been discussion of the need to elevate PNG from what is often perceived as corporate subservience.
The move is likely to earn Santos some favour, especially if it genuinely leads to improved local outcomes for PNG communities. The company is still recovering from a court loss in Australia, where it was revealed that Santos had failed to consult with local Indigenous landowners at all.
This decision incurred significant costs for the company and damaged shareholder confidence, as many believed Santos to be too sophisticated to cut corners in such a blatant manner.
As part of the deal, Kumul also has the option to acquire an additional 2.4 per cent stake for an additional cash price of $524 million.
In total, Santos is offering PNG’s government-owned oil company a five per cent interest in its LNG project for no less than $1 billion, a significant sum that Kumul struggled to raise earlier this year.
Santos has also been eager to receive substantial escrow payments from the small and economically challenged island nation, which has had prior interactions with Australian resource corporations.
“This re-structured transaction is a pragmatic solution that provides a clear pathway to completion and builds our strategic alignment with Kumul and our long friendship with PNG,” STO Managing Director Kevin Gallagher said.
“Santos has been a committed corporate citizen for over 40 years.”
STO shares last traded at $7.67.
